Affluence No Buffer for Fear of Health Costs in Retirement

Money
is apparently no protection from the terror that strikes at the hearts of Baby
Boomers contemplating health care costs in retirement, according to the third
annual Nationwide Retirement Institute survey.

A
majority of survey respondents (72%)—all with at least $150,000 in household
assets—say one of their top fears in retirement is health care costs going out
of control. More than half (55%) believe the Patient Protection and Affordable Care Act (ACA) will
increase those costs.

Fear
has done little to inspire these pre-retirees to take action, however. More
than one-quarter of employed affluent Baby Boomers (26%) say they believe they
will never retire. More than two in five (45%) say they would delay their
retirement if they had to buy their own health insurance.

Just
two years ago, most affluent Boomers surveyed expressed little concern over
health care costs in retirement. Last year, that number rose to 30% and
jumped a bit higher this year, to 44% saying they believe it will be the
biggest expense throughout retirement.

These
concerns can be positive, says John Carter, president of Nationwide’s
retirement plans business. On the one hand, they increase the conversations
around health care costs in retirement, being a great starting point for
advisers to help retirement plan participants assess and plan for these costs.

“We believe there is
a lack of clear understanding around the Affordable Care Act,” Carter tells PLANSPONSOR,
with four in 10 consumers saying they believe the ACA will increase health care
costs in retirement. People just do not fully understand the entire benefits
landscape, he feels, a picture that includes Medicare, Social Security benefits
and long-term care. Nor do they fully understand how much they will need, to
meet expenses in retirement.

“Their
underestimate of what health care costs in retirement can lead to these fears,”
Carter says, and in the wake of fear and misunderstanding, they fail to plan.
According to the survey, just 23% of Boomers have discussed health care costs
with a financial adviser. “It’s not just about the assets you accumulate,”
Carter says.

More
than three in five affluent pre-retirees (61%) say they wish they had a better
understanding of Medicare coverage. Nearly two-thirds of affluent pre-retirees
enrolled in Medicare were unaware the program does not cover long-term
care costs. “There is room for us to educate more,” Carter says.

The
survey yielded few surprises, Carter says, but it did highlight that a
lack of knowledge around how to plan for the costs of health care in retirement
continues to be a challenge for pre-retirees. He recommends using all available
expense planning tools—such as Nationwide’s Personal Health Care Assessment—and
calculators that can help remove the complexity.

As
for Boomers who declare they simply will not retire, Carter notes that many say they will
postpone retirement or forego it altogether, but only 3% of workers actually do
that. For a range of reasons, including unexpected health issues and changes in
work situation, the plan is undependable. “We don’t always have a say
in the exact date when we’ll retire,” he says.

According
to Carter, Nationwide is seeing individuals have more desire to learn how to
create an income stream in retirement and how it can match up against
liabilities. Since health care costs are a substantial liability, Nationwide’s
goal is to move the needle, Carter says. “Not enough people are having these
conversations.”

The online survey was
conducted between October 6 and 14 by Harris Poll and surveyed 801
Americans aged 50 or older with at least $150,000 in household income.